Free Money Finance

A Great Money Question

2009-11-14T06:08:00-05:00

Here's a great money question (preceded by a fill-in-the-blank statement) from page 209 of The Secret Language of Money: How to Make Smarter Financial Decisions and Live a Richer Life:

1. My current annual income is $_________________

2. In order to ensure happiness and contentment financially, with no more money problems and worries, my annual income would need to be $_______________

A few thoughts on this:

1. I think it's a great question (or exercise if you prefer -- I guess it's not technically a question) because it's very thought-provoking IMO. If you're not happy with what you make now, what amount will make you happy? Or will making more ever make you happy?

2. Of course, we all know people (and I write about them often) who make more only to spend it all -- and they are no better off (and not happier either.) So is income the real issue here?

3. For me, I'm way past the "happiness" level of income. Sure, I'd prefer earning $10 million a year (I could do this for three months and then retire), but realistically I am completely happy with my level of income.

4. If you're not happy with what you make, what are you doing to close the gap? Maybe you're working on growing your career or perhaps earning some more money on the side?

So, after looking at the above, is there a gap between what you earn and what you'd like to earn? If so, how big is it and what are you doing to close the gap?

How to Become a Billionaire

2009-11-13T12:15:00-05:00

Forbes recently looked at the lives of several ultra-wealthy individuals and came up with this list for how to become a billionaire:

Their parents had a high aptitude for math.
They were born in September.
They were either college drop-outs or went to Yale.
They worked at Goldman Sachs.

All strikes for me -- no wonder I'm not a billionaire. :-)

Forbes admits, of course, that its findings are very non-scientific. Though they are interesting to review, I doubt that they have any correlation with actually becoming a billionaire. In fact, other than "have a brilliant business idea, do it better than anyone else, and stick with it", there's probably not a whole lot of direction one can get for how to become a billionaire.

Becoming a millionaire, however, is something that's relatively easy to achieve. Simply follow the basics.

FMF Policy on Ads and Affiliate Programs

2009-11-13T05:29:00-05:00

On December 1 the FTC's new "guidelines" on blogger endorsements go into effect. In their usual style of being as unhelpful as possible, the government left the guidelines fairly vague so each blogger has to figure out what to say, how to say it, and so on. This is my attempt to address the situation.

Soon after this blog was started several years ago (once I actually started earning anything -- that took a few months), I detailed my ad policy on Free Money Finance. That post laid out my philosophy for advertising -- I used ads from Google as well as some other sites/services that I trusted, used, and or recommended and all the proceeds from every sort of ad was given to charity. Since then, my policy hasn't changed, but given the new guidelines I thought this was a good time to restate my position/philosophy so that we're all on the same page:

I do have ads on the site. There are Google ads that I do not control (ads that they serve that theoretically tie in with the material I've written on the site) on the top left sidebar (listed as "Sponsored Links"). In addition, there are other ads and affiliate program ads (like in the top right sidebar listed as "Site Sponsors") on the site as well.

In addition to ads, I also use affiliate ads and links. These work as follows: someone clicks on the ad/link, if they like the product or service they buy it, and I get a portion of the sales price. They do not pay a higher price this way -- they simply buy at the going rate and I receive a portion of it for referring them. These are most used in posts I do on books (linking to Amazon), examples being this post (there's a link to the title of the book) as well as this one that links to You Need a Budget.

Other than the Google ads, I select what goes on the site and what doesn't. I'm fairly selective, sticking to products and services that I either know/use or like/recommended (even though I don't use them.) An example of the latter would be You Need a Budget. I don't use that software since I have my own, self-developed budgeting spreadsheet. But I like what they offer (I've seen their product) and I've had enough positive comments about them from readers that I feel comfortable offering their products here.

I weed out a lot of the riff-raff. Believe me, I've get lots of offers from all sorts of sites (payday loans, debt consolidation, etc.) as well as text link ad offers that don't work for this site. Basically, if I don't think the ad/affiliate program will benefit at least half of my readership, I don't run it.

I do actively solicit ads and have developed a policy for them. If you'd like to advertise here and you have a product that would help out my readers, drop me a line. :-)

All of the money I earn here -- every last penny -- is given to charity. Every year I list what charities the blog has supported (see the bottom of this page for details) and I will continue to do so. So far, we're closing in on $200,000 given to help people out all over the world.

Of course, I could choose to have no ads at all. But I prefer to have them and use the funds generated to help the needy. That said, you can have been a reader of Free Money Finance for years and never have generated a penny for the site. That's a pretty good value for regular, free personal finance content if I do say so myself. :-)

If you're "worried" that anything you see here is an ad or isn't, the best policy is to assume it is and handle it as you see best in that light. For the time being, I plan to use this post (which I'll link to from my sidebar) as my general ad notice and not list such on each and every post that has ad/affiliate links (it junks up the posts/site). That said, I may eventually need to include something on every post with an ad/affiliate link in it (which will get quite burdensome). As I noted, it's not clear what the government guidelines do and don't call for, so the future is murky.

And of course, you can always email me with questions, thoughts, comments, etc. if you have any concerns or feedback you'd like to share.

Sorry to take us off the topic of personal finances to deal with the "business" side of the blog. We'll get back to how you can grow your net worth in the next, upcoming post.

Star Money Articles and Carnivals for the Week of Nov 9

2009-11-13T05:19:00-05:00

For weekday updates of what I find to be some of the most interesting personal finance articles on the web, follow me on Twitter. For now, here are some pieces I found especially worthwhile and some of the carnivals Free Money Finance was in this week and my posts that were included:

Lazy Man and Money saved money in Dallas.
FrugalDad compares corporate security to freelance freedom.
BripBlap tells how to manage money.
My Dollar Plan discusses HSAs.
Money Smart Life has some year-end tax tips.
The Digerati Life suggests a debt diet.
The Sun’s Financial Diary argues against frugality.
FiLife has an identity theft horror story.
Bargain Babe has a coupon stacking video.
Smart Spending discusses asking someone about their salary.
Consumerist tells how to get the most from all-you-can-eat buffets.
Carnival of Personal Finance - Intelligence Still Linked to Income, Not Wealth
Carnival of Money Stories and Money Hacks Carnival - How to Buy a New Furnace and Air Conditioner
Festival of Frugality - Car Care Maintenance Myths

Enjoy!

P.S. Carnival Hosts -- If my post is in your carnival in a given week, please send me the URL to the carnival and I will include it in my weekly roundup.

Which Financial Website is Best for You?

2009-11-12T15:45:00-05:00

Smart Money asks which financial website is best for you and offers up these options:

Wesabe.com
QuickenOnline.com
Mint.com

I use none of these myself.

I do use Quicken's desktop version mostly to track spending, investments, and net worth, but other than that, I don't use any website to do those tasks. I do, of course, read TONS of financial sites and blogs to get information and keep learning, but that's it. And I don't think there's one "best" financial website for me -- I think I do much better when I refer to several of them on a regular basis.

How about you? Do you have a "best" financial website for your finances?

Help a Reader: Refinancing a Mortgage

2009-11-12T11:15:00-05:00

Here's an email I recently received from a reader:

I am currently in a fixed rate mortgage with 27 years left to pay and a balance of $104,000. My interest rate is 8.62%. Is it wise for me to try to refinance at a lower interest rate in order to lower my monthly payment or should I just stay put and ride out the storm? My eventual goal is to sell the house if the market ever turns back around so I don't plan on riding out the entire 30 years anyway. Right now we are upside down in our mortgage so to sell is not an option.

What advice do you have for her?

Who Earns More in Your Marriage?

2009-11-12T05:29:00-05:00

Here's a piece from MSNBC that says women are increasingly earning more than their husbands. A few of the stats they share:

In 2007, 25.9 percent of wives were earning more than their husbands in households where both spouses work, according to the most recent data available from the Bureau of Labor Statistics. That’s up from 17.8 percent two decades earlier.

Among all married couples, including those where the husband isn’t necessarily working, 33.5 percent of women were making more than their husbands, according to the 2007 data.

The recession has likely exacerbated the trend; nearly three-quarters of the approximately 7 million people who have lost jobs in this recession have been men. The unemployment rate for adult men stood at 10.3 percent in September, compared with 7.8 percent for women.

65.3 percent of women and 61.2 percent of men strongly agreed with the idea that they are comfortable with women earning more than men in a household.

I'm surprised it's that high -- one-third of women make more than their husbands. Will probably be half of women within the next couple of decades.

So, this information makes me want to ask:

Who earns more in your marriage? Do you have any problems with this arrangement? (no matter who earns more)

Currently, I earn more in our marriage since my wife is home with the kids. But early on in our marriage we were fairly close in salary -- I was $20k or so ahead of her but we both had great careers. But we always planned on her being home once we had kids, and we planned accordingly for it -- living on my salary only. It's been a great arrangement and so far has worked out perfectly.

Now, my plan is that once the kids go off to college, my wife can start her career again and I can retire early! (Just checking to see if you're reading, honey!) :-)

The end of the piece has some information about Michigan Governor Jennifer Granholm who is married to a stay-at-home husband. I couldn't resist this quote:

“He's actually better at parenting than — than I am,” she said.

My guess is that he'd be a better governor too (no, nit because she's a woman, because she's a buffoon killing our state) -- but that's for a different post. Thank God for term limits...

Help a Reader: Where to Save

2009-11-11T15:45:00-05:00

Here's an email I recently received from a reader:

I read one of your older 2008 posts about what order to invest in (meet company matching in your 401k before opening a Roth IRA), and I wondered if you have cash left after that, do you then open another Roth IRA if you’re married? Or do you go back to increasing your 401k? In case it depends on some stuff, here’s our quick financial summary...

My husband and I are 26 and live in Houston, TX. He is a middle school teacher ($43000) and I am an office worker ($35000). We live on about $40,000 a year (a little less). As of now, we do not have any plans to have kids…being a middle school teacher or a wife of one makes you a true believer of birth control. :-)

We bought our $130,000 1750 sq. ft. home as a foreclosure for $114,000 2 1/2 years ago and put 20% down on a 15 year loan at 5.375%. Since I overpay the mortgage, we have $78,000 and 8 years left.

We have one car loan on his 2007 used Prius at a 4.1% rate and have about $12,000 left ($330 a month). My Chevy Aveo is paid off and is only 4 years old with 37,000 miles. I will drive it until it won’t drive anymore and then get a used Prius as well (ours really does get 46-52 MPG for my hubby and I hate stopping all the time to fill up in my tiny car…10 gallon tanks stink).

We have no other debt. We do use credit cards for almost everything (I love my Discover), but we use them for the rewards and to budget. They get paid off every month.

We have $15,000 in ING Direct in case one of us loses our job (emergency fund)…that should be able to supplement us for a full year if only one of us was unemployed or 4-6 months if we both lose our jobs at the same time. For retirement, we put 6% to my 401k which is matched at 6% (12% total to a Vanguard Target Fund). We also contribute to his state pension, I’ve been contributing the maximum $5,000 to my Roth IRA for the last two years (Fidelity Target Fund), and my husband invests about $2,500 a year in the stock market (we really like Johnson & Johnson right now, but our money is spread out over 9-11 stocks).

And my husband is currently getting a masters, which we have been paying for 100%...but he graduates Dec 2010.

So, when we have some extra money starting when my husband graduates ($625 a month), do we get another Roth IRA, increase my 401k, put more in stocks, pay off the car, or put it towards the house? Or do that in some combination? Also, are we on track to retire in our mid-fifties as planned? His pension could start at age 52 since that would be 30 years of working in a school disctrict.

What advice do you have for her?

Have You Ever Had a Boss That's Hated You?

2009-11-11T11:15:00-05:00

This piece from MSNBC about bosses that hate employees made me want to ask this question:

Have you ever had a boss that's hated you?

I've detailed my entire work history, so you all know a lot about my work life. But the one thing I didn't cover is the boss who hated me. Unfortunately, I ran into this boss in my first job out of business school.

I detailed in that post the reasons she had for hating me -- I was dating a woman the boss hated, I made a few mistakes in managing projects, I tried to do some new things in new ways in an old, this-is-how-we-do-it company, and so on. Add to these that our personalities just didn't click. Not at all. Not one little bit.

So what did I do? I bailed and moved. After determining that I had zero future at the company (I had a friend go to my bosses' boss and ask what the future held for me and got a "not much" response), I found a great job at a great company and moved on.

How about you? Have you ever had a boss that's hated you? What did you do about it?

A Final Reminder

2009-11-11T10:28:00-05:00

If you haven't signed up for my giveaway newsletter, now's a good time to do so. I'm putting the finishing touches on the November issue and we've got lots of great prizes! They include a $50 SmartyPig gift card, three copies of Quicken personal finance software, one copy of You Need a Budget software
and one box of books containing eight personal finance books. If you want a chance to win any of these, sign up now for my giveaway newsletter.

Portfolio Recommendation Beats S&P 500 by 9.4%

2009-11-11T05:29:00-05:00

The following is a guest post from Marotta Wealth Management. For those of you interested, I have a similar, though not exact, investing strategy to the one he details below.

Exactly a year ago I encouraged you to avoid another lost decade in the markets. I recommended a specific balanced portfolio that today is beating the S&P 500 by 9.4%.

At the end of September, the S&P 500 was down 6.9% after one of the most volatile 12 months in the market's history. Even over the past 10 years it lost money with an annualized return of -0.15%. So although buy-and-hold investors are relieved the markets have recovered much of their losses from lows in early March, all is not dividends and capital gains.

To add to their distress, many buy-and-hold investors did not even receive the market return. They purchased closet index funds with overly inflated expense ratios. Excessive fees sapped value from their investments while the underlying strategy proved fruitless.

Many active investors fared far worse. In their scramble to avoid bloodshed, they sold near the lows. They didn't get back into the markets until the recovery passed the point at which they had exited. Timing the markets this past year was nearly impossible. The drop was precipitous, but the recovery was equally steep. Those who rebalanced at the low took money out of safe investments and bought into equities just when the outlook was the bleakest. These fortunate contrarians boosted their returns significantly.

So did those people who simply diversified into the blended portfolio I recommended a year ago. That portfolio experienced a 2.48% gain over the past year in contrast to the S&P 500's 6.91% loss. It beat the S&P 500 by an impressive 9.39%.

We generally do not recommend S&P 500 index funds. The S&P 500 is a capitalization-weighted index. It tends to buy more of a stock when it goes up and hold less of a stock when it becomes more reasonably priced.

If the S&P were a financial advisor it would say, "Let's buy mostly large-cap growth stocks in the industry that did well last year with a high price per earnings ratio." The result would be a very aggressive and volatile portfolio that does better at the end of a bull market than at the beginning. And it does miserably at preserving capital during a bear market--exactly what happened over the last decade.

So if you are invested primarily in funds that mimic the S&P 500, a lost decade should be no surprise. If we use market history to run hundreds of Monte Carlo simulations on a portfolio invested in an S&P 500 index fund, projections indicate returns at or below zero about 6% to 7% of the time. This scenario is an astonishingly accurate snapshot of trends in the past 100 years in which six 10-year periods showed no gains. These periods were the 10 years ending in 1914, 1921, 1932, 1938, 1974 and 1977.

If you were invested in the Vanguard 500 Index, your 10-year average return through the end of last month was -0.23%. The official rate of inflation during the past decade averaged 3.0%, but in reality it was probably at least 5%. If you were invested in an S&P 500 fund, your decade-long progress toward your retirement goals has stalled significantly.

But if you were a savvy investor, you did not lose this past decade. If you committed to a balanced portfolio, you experienced both higher returns and lower volatility.

Even a balanced portfolio of just six different common funds could have boosted your 10-year average return to 6.21%. And it would have lowered your volatility from a standard deviation of 16.25% to only 14.83%, a 6.36% better annual return with 1.42% less volatility.

The portfolio I recommended didn't cherry-pick investments that have done the best recently. Rather it chose widely used funds from each major asset class.

My comparison portfolio allocates 20% to fixed income in the Vanguard Total Bond Index (VBMFX). Of the remainder, it designates 31% to U.S. stocks with 21% in the Vanguard 500 Index (VFINX) and 10% in the Vanguard Small Cap Index (NAESX). Another 31% goes to foreign stocks with 21% in Vanguard Total International Stock (VGTSX) and 10% in the Vanguard Emerging Market Index (VEIEX). The final 18% is invested in hard asset stocks in the T. Rowe Price New Era Fund (PRNEX).

The funds just described have been popular for over 10 years. They have not made their gains from active trading. And they have low expense ratios. These are not necessarily the ideal funds to select today. Nor is this the flawless asset allocation. These are simply reasonable funds in each asset class.

Both in theory and practice, a balanced portfolio has proven to be a far superior way to meet your financial goals. In Monte Carlo simulations, balanced portfolios earn money over a decade, even the bottom 5% of random returns. The exact portfolio construction is less critical than including asset categories with a low correlation to the S&P 500. A well-balanced portfolio should result in good returns with lower volatility. Returns will still vary widely because the markets are inherently capricious, but the worst cases should be considerably better.

Of the six holdings listed here, the best return over the past 12 months was the Vanguard Emerging Market Index (VEIEX), up 17.38%. This holding dropped the most a year ago but recovered even faster.

Downward pressure on the U.S. dollar has continued in recent months. So we are still strongly advocating portfolios that hold a significant percentage of assets denominated in other currencies. These assets include foreign and emerging stocks, foreign bonds and hard asset stocks.

Holding on to an undiversified portfolio will, on average, keep on providing inferior returns with higher volatility. Don't continue to wait in vain for a poorly balanced portfolio to satisfy your investment requirements. You can't afford to miss another year or another decade.

Is a College Education Still Worth the Investment?

2009-11-10T15:45:00-05:00

Sound Mind Investing asks if a college education is still worth the investment. They provide a good amount of data, insight, and analysis and come up with the answer "it depends." (I hate that response too, but it's often the correct one for any sort of financial decision people make -- because everyone has different goals, challenges, etc.) That said, there are some very interesting points made in this piece -- especially at the end. Some of their thoughts:

As a former full-time college instructor, I can attest to the sad fact that some students are doing little more than wasting time and accumulating debt. There was no denying that they had gifts; they just weren't strongly gifted when it came to academic pursuits.

Because the student is the real key, the decision about what kind of post-high-school education to pursue must be a personal one. Just don't assume, as many parents and students have done in recent years, that earning a B.A. is the "best" option.

There is no rule that says a high-school graduate must immediately enroll in college. Perhaps your son or daughter would be better served by taking a year or two to work and save.

Consider the military. Military life isn't for everyone, but entering the armed services is an excellent way to gain an excellent education at low or no cost, while also serving the nation.

Some interesting suggestions here IMO.

Our kids are still several years from making the college decision, but I can see the wisdom in what's being talked about here, especially:

1. College is not a holding place where people go to "figure out the rest of their lives" -- that's an expensive way of deciding what you really want to do. Instead, how about taking a couple years off between high school and college, working a bit, and then deciding what to do as a career option? Sounds like a good idea to me -- especially for those who are unsure or not as mature as their counterparts.

2. I am guessing that there are several readers out there who were/are in the military (based on comments I've received.) Any of you used the services to get a college degree? If so, can you give the rest of us a few ideas -- what you did, what worked, what you'd do differently, etc.?

Why You Shouldn't Buy Tires at Costco

2009-11-10T11:15:00-05:00

I've now purchased two sets of car tires from Costco. They are great tires (Michelin) at the best prices I could find anywhere. The first set lasted as advertised and I had no problems with them or the service at Costco. But the second set has been a bit different. Not with the tires themselves, but with the service from Costco. It's so bad that it's making me re-think my future tire decisions. I probably won't buy another set of tires there.

For those of you who don't know the setup at Costco, when you buy tires from them, they will rotate the tires free of charge every 7,500 miles. You simply bring the car in, turn the keys over, and they rotate them for nothing. Not a bad deal, right? Well, there are a couple of snags:

You CAN NOT make an appointment for a tire rotation. It's simply first come, first served. Forget trying to time a tire rotation to coincide with regular shopping at Costco -- if you're three hours from any sort of semi-popular shopping time at the store (which is almost any time they are open), you're looking at a two-hour wait at least. Why can't they simply let people make appointments?

After the tire rotation is completed, they strongly suggest (you have to sign something that says you've been advised of this) that you come back after 25 miles to make sure the tires were put on securely. I'm sure this is some sort of legal protection policy, but it says one thing to me: "Unlike other garages, our mechanics aren't that good at tightening nuts on a tire, so be sure you bring your car back in to check because there's a good chance one of your wheels will come flying off at 70 mph." In addition, if I leave Costco, make a couple other stops, then drive home, I'll be at 25 miles with one trip back there. Does this make any sense?

So to try and minimize the hassle of waiting for a tire rotation, I arrived before the store opened a few weeks ago. As they were opening the doors, I tried to go in the "out" door (which is the side where the tire department is.) I was waived back to the other door by some follow-the-rules clerk, and in those 20 seconds I missed, another guy had walked up, passed me, and was at the tire counter before I got there. I was second in line, was notified that it would be an hour before they were done, and when I got there an hour and 15 minutes later, I still had to wait 10 minutes. Ugh.

So here's the problem for me: time is money. If I have the uncertainty of having to wait for an indefinite amount of time and have to plan my entire life around trying to get a semi-decent length of time to get my tires rotated, it's just not worth it. I can get tires for only a bit more somewhere else that does take appointments -- and that has mechanics that know how to tighten nuts the first time too. As such, I probably won't buy tires from Costco again.

If you have ideas on how to deal with this issue, I'm all ears. I've tried shopping in the store, and I can kill an hour doing this. But at the time I go shopping it's usually far over an hour's wait. I've thought about having my wife follow me in her car and then her bringing me back a few hours later, but Costco isn't that close to home -- and why should I have to deal with this anyway?

Keep Yourself Healthy

2009-11-10T05:29:00-05:00

I have a whole category titled More Important than Money. It's where I keep all my posts on the things more important than money -- things like your family, time, and your health.

The issue of how important your health is was addressed again in a recent Yahoo article on taking care of your finances. Here's what they had to say:

Daily physical activity lowers the risk of a multitude of ailments, from heart disease to diabetes to certain kinds of cancer, which are obviously expensive to treat, even for people who have health insurance.

A Harvard study found medical bills are behind 60 percent of U.S. bankruptcies, and more than 75 percent of bankrupt families had health insurance at the onset of the illness. Meanwhile, a regular work-out might get you a raise. Studies have found exercise can improve your performance at work by boosting cognitive skills and productivity, and reducing stress and absenteeism.

A couple thoughts on this issue:

1. If you don't have your health, you're in big trouble financially. To be sick is often a double money whammy -- your income suffers and your expenses go up. Bad for your net worth all the way around.

2. I get some sort of physical activity every day. My main exercise is now swimming which I do anywhere from two to four times a week. The other days I'm walking the treadmill, doing outside work, refereeing some soccer games, playing basketball, or doing something else active. It's a rare day that I don't get up and get moving in at least some small way.

How about you? Do you make exercise a regular part of your life? If so, what do you do? If not, why not?

Credit Card Karate: The Moves to Block Spending

2009-11-09T15:45:00-05:00

The following is a guest post from Marotta Wealth Management.

The availability of easy credit does not encourage financial virtue. Five minutes of credit card indiscretion literally can undo a life of financial responsibility, just like flirting at a bar with an available stranger can threaten marital fidelity.

You are trying to stick to your budget and live well within your means. You want to be a supersaver, someone who amasses real wealth by living simply and investing the remainder. To achieve these goals, you have to set rules in advance for how you will handle credit. If you don't, credit cards could undo all your hard work and planning.

A life of credit card debt is like the worst slavery imaginable. Failing to pay just a few hundred dollars a month will cause your debt to spiral out of control. At the end of just three years you could owe about $9,600, the average family's credit card debt.

Credit cards rates of 18% or even more are typical when you fail to pay. It used to be called usury and was illegal. But nowadays it is described as financial services and has become a highly respectable career.

If you don't stop buying that $200 worth of junk on credit, your debt will only worsen. After 24 years, you could be over a million dollars in debt for just $58,000 worth of merchandise. But if you switch that engine from reverse to forward, you could retire as a millionaire simply by saving and investing what you aren't paying on your credit card.

Consider the two sides to using credit. On the one hand, credit cards provide you with convenience, protection and help you maintain your budget. On the other hand, they can be a seductive siren's song leading you to financial ruin.

A few visualization techniques can help you avoid the wanton use of credit cards. Studies show that when people pay with a credit card, they are willing to spend twice as much money as when they use cash. Other research indicates that the biggest savings are enjoyed when people refuse to make small everyday unnecessary purchases. Put these two studies together, and by simply using a credit card you risk doubling your spending and cutting your savings in half. Thus credit card debt can sink families even faster than saving and investing can help them grow rich.

In the first visualization, imagine that everything you buy with a credit card costs twice as much as the number on the price tag. Only if an item costs twice as much will you be as hesitant to purchase it as if you had to pay cash.

To use the second technique, remove the decimal place on the price when you use your credit card. The younger you are, the more failing to save early will cost you when you retire. For example, at age 20, the $8.50 lunch you charge will cost you $850 in your retirement at age 63. If that isn't incentive enough, add another zero. It will cost you $8,500 in your retirement by age 85.

The years after college and before children are a great time in your life to save. You may not have another time to save aggressively until the kids graduate from college. You lose time and squander your resources if your credit card spending dampens aggressive savings. Every seven years you wait to fund your Roth IRA, you cut your retirement standard of living in half.

There's a greater advantage to contributing $2,000 annually for the seven years after college then beginning during the eight year and continuing for the rest of your life. With normal market returns, after seven years of $2,000 annual contributions, your investments will be appreciating at a rate of more than $2,000 a year, without any additional contributions.

Reining in your spending anytime is better than concluding that credit card debt is inevitable. Wait seven years from now and you cut your retirement lifestyle in half again. So visualize cutting your retirement in half or your credit card.

If you don't think you have any problems with your use of credit cards, but you haven't been saving and fully funding your 401(k) and Roth IRA, you do have a problem. If so, put the credit card back in your wallet and start saving.

Using a credit card properly is important. Not abusing a credit card is essential. Unless both partners in a marriage agree on how they handle credit, the cards aren't worth the plastic they are printed on. Either spouse should have veto power regarding the use of credit.

Each partner needs this respect because both parties can be liable for the underlying debt. So if you are part of a couple who are always paying fees or interest, you are better off running your budget with cash and envelopes.

There is no shame in alcoholism, only in being a drunk. Similarly, there is no shame in having credit troubles, only in continuing to be spendthrift. Financial troubles sink a great number of marriages, nearly all of them because they fail to admit that for them an open credit line is an empty credit line. Alcoholics struggle similarly with an open bottle.

Thus the only shame around credit problems is an unwillingness to accept help. Many people use credit cards intelligently for nondiscretionary purchases such as bills, utilities, groceries and gasoline. But smaller impulse items, such as eating out or spending on books, music, electronics or clothes, can quickly wreak havoc on their spending plans.

If one type of purchase causes you trouble, stop using credit cards in that area. If one person has difficulty, the other should be willing to bear the burden of paying the bills. Cash accounting means you can't spend too much. It is the perfect exercise of sobriety for your spending habits.

One of my favorite movies is "The Karate Kid" starring Pat Morita as Mr. Miyagi. Miyagi trains his young apprentice Daniel by having him wax his cars, sand his floors and paint a fence. Only after several days of backbreaking work does Daniel realize that his body has learned the defensive moves of karate through the muscle memory of "Wax on, wax off."

You can't learn the critical lessons of finance with the electric waxing machine of plastic credit. By refusing to use credit, you have the visual feedback of money going from your paycheck to a budget envelope and then leaving your wallet in exchange for something you really need.

Most people don't learn these lessons from their parents. And even if your elders handled money well, you still have to learn the lessons for yourself. Having a parent who excels in karate doesn't mean you can crane kick.

So if your spouse vetoes the use of credit, you can either get mad like Daniel did at Mr. Miyagi or you can get busy learning financial karate.

How Much Vacation Time Do You Get?

2009-11-09T11:15:00-05:00

This piece on vacation days made me want to ask all of you:

How much vacation time do you get?

The numbers in the article above include both vacation days as well as holidays. Workers in Lithuania and Brazil led the pack with an average of 41 days off per year. The US averaged 25 days -- 15 days of vacation plus 10 holidays a year.

Vacation is one thing that I've always guarded and negotiated as I've changed jobs, and I've never gone backwards as a result. I've had a couple employers want to drop me back to their "standard policy" (like one week) when I've switched positions, but I've held firm. I see vacation time as time with my family and I'm not going to give that up.

As such, here's what I currently have as vacation time each year:

20 vacation days
7 personal days (can be taken in one-hour chunks for things like dentist visits or full days for sickness, etc.)
6 holidays (New Year's Day, Memorial Day, July 4th, Labor Day, Thanksgiving, Christmas Day)
33 days total

We actually convert the vacation and personal days into hours and then take off what we need, when we need.

BTW, I hardly ever take all my vacation. I take what I need/want and the rest is banked. I carried over some days last year and as of this writing I still have 24 days coming to me for 2009. I may use some of those in December, but no matter what I do, I will carry over a big amount into 2010. I can choose to get paid for them if I like, but I prefer having banked vacation in case we decide we want to take an unexpected vacation.

Now that I think about it, I should make it a goal to take more vacation next year. I'll put that on my resolution list.

So how about you? How much vacation time do you get?

Best of Money Carnival Now Up

2009-11-09T10:36:00-05:00

Here's a post to let you all know that the latest edition of the Best of Money Carnival is up today. Congrats to all participants and especially the winning post, Travel Hacking for Noobs: How We Save Hundreds on Airfare, Get Free Accommodation, & Make Money while Overseas.

For the record, I made the carnival myself with my post titled How to Buy a New Furnace and Air Conditioner. ;-)

Enjoy!

How to Make Money as a Soccer Referee

2009-11-09T05:29:00-05:00

I've suggested that one way to make some extra money is to turn our hobbies into incomes (in fact, this is one of my 11 great ways to earn more money). In addition, I've noted that my son and I had become volunteer soccer referees but were thinking of looking into paid games. Well, we did that and completed a season as "professional" referees, so I thought I'd give you all the scoop on how we did this, what we learned, etc. If you're interested in making some extra money as a soccer ref (or any sort of ref for that matter), this post should be right up your alley.

Some Caveats

Before I get started, let me issue a few caveats:

This is the way it worked for us, and I think it's rather typical. But I can't say for sure since I've been doing this for less than a year. In other words, your mileage may vary.
This is how it works in Michigan. From what I've heard, it could be different in other states or cities.
I'll probably get some terms and meanings wrong (I am still learning myself after all.) But I know I have some more experienced soccer refs as readers and I'm hoping they'll correct me and fill in the gaps where needed.

Our Background

Just so everyone is on the same page, let me review how we got started in this venture.

My son and I both like soccer. He's played off and on, I've coached off and on (for his teams) and we watch it on TV (primarily the English Premier League.) We decided that we wanted to be part of the game in our local community, so last spring we took classes to be referees for our local community soccer league. We refereed about 20 games in April/May. Over the course of the season we heard there were games where refs got paid (we didn't know where to find them, just that some existed.) I started doing some research and thus we were on our way to turning our hobby into an income.

If you're looking to become a referee in your area, be ready for a lot of investigative work. There's not one site, one organization, one person or one central point for all the information you'll need. You'll have to network, do online research, and ask a lot of questions. Often, you'll get conflicting answers, and you'll need to separate the fact from fiction. This is what happened to me, and I simply kept at it until I got the answers.

I started by having lunch with a friend of mine who is connected in the local soccer scene. I was his daughter's soccer coach a few years ago, but he's been a soccer coach for many years and knows all the soccer world here. Over lunch, he gave me the basics, some sites to look at, and some people to call. I did all of those and sorted through the details to get enough answers to get started.

Community Versus Club Soccer

Before I go on any longer, I need to describe the difference between what I call community soccer and club soccer (I don't know if these are the proper terms for each of them -- they probably aren't -- but that's what I call them.)

The community soccer in our area is the American Youth Soccer Organization (AYSO). AYSO's mission is "to develop and deliver quality youth soccer programs which promote a fun, family environment based on AYSO's Six Philosophies: Everyone Plays®, Balanced Teams, Open Registration, Positive Coaching, Good Sportsmanship and Player Development." In other words, it's an entry-level league where kids can learn to play soccer without the pressure of trying out for a team (everyone plays, so skill level is not a big concern). It's a fun way to play competitive soccer. The parents and coaches are supposed to be more low key and encouraging (supposed to be -- more on that later.) Teams are organized by age groups (U10 features players under 10 years old, U12 has players under 12 years old, etc.) so they are roughly equal in skill.

Club soccer is competitive soccer. There are tryouts and if the kid is good enough, he makes the team (there are various levels of teams -- select, premier, etc. and even levels within levels to differentiate the kids by skill/ability. BTW, while I say "he", there are the same options for girls, of course.) Once selected, the player gets a whole host of benefits: he gets to practice more often, he gets professional, paid coaching, his parents get to pay several hundred dollars to the club for the season, he gets to experience the sport at a more competitive (and stressful) level, he earns his playing time, and so on. Let's just say these people (players, coaches, parents, etc.) are serious about their soccer.

One thing many assume is that the competitiveness of club soccer makes it rougher on refs since there's much more seriousness around the sport. I considered this as well. After all, did my son and I want to be yelled at by professional coaches and parents paying a ton to see their kids play? No amount of money is worth the verbal abuse we've all likely seen at some games. IN reality, I've actually found the opposite -- there are less issues with the club coaches, players, and parents than with AYSO parents for one simple reason: they understand the rules (for the most part.) AYSO coaches and parents often don't know much at all about the rules of soccer, expect it to be played like basketball (touch a player and they think it's a foul), football (once the ball touches the line, it's out), or some other sport they are familiar with. This often leads to yelling nonsensical things at and towards the refs.

The Types of Soccer Referees

There are basically two types of soccer referees (in a three-man system, which is how we work. I realize there are two-man systems too, but we don't ref that way):

Center -- This is the guy that is actually on the field, calling most of the shots. His word is law. He's the main referee and the one the other referees report to.
Assistant Referees (ARs) -- ARs are also called "linesmen" by some, though I don't know if this is a proper term or not. They are the guys on the sidelines ("touch line" more exactly) that wave the flags and call when the ball is out of bounds, what team it goes to, and so on. They are also key to calling offside, but I'm not going to get into that since this piece will really get muddy then. There are two ARs per game -- one on each side of the field.

The Pay

Community soccer (at least AYSO) pays zippo to the refs -- they do it as volunteers to help the community. There is a $1 per game amount that's credited to each ref (both centers and ARs) that he/she can then use to purchase merchandise out of an approved catalog, but we haven't yet had the chance to buy anything as the system is very informal. I'm not sure we'll ever see anything and if we don't, it's no big deal.

Club soccer pays referees. Center refs get more and the pay is increased for both centers and ARs the older the players are. Here are various age groups, what the center ref gets paid, and what each AR gets paid for the club games in our area:

U8-U10 -- $25 -- $10
U11-U12 -- $30 -- $15
U13-U14 -- $35 -- $20
U15-U16 -- $40 -- $25
U17-U19 -- $45 -- $30

For those of you looking for a time/cost ratio, you can tell the amount of time in a game by looking at the center ref's pay. That is also the amount, in minutes, in each half of the game. So for a U11 game, the center ref makes $30, so there are 30 minutes in each half (60 minutes for the total game). And unlike other sports most Americans watch, soccer games have a running clock (it doesn't stop for out-of-bounds, fouls, etc.) Granted, some time is usually added on, but when you see a 60-minute game here, it is very close to an hour long (unlike an American football game that has 60 minutes officially but can actually take three hours or more to complete.)

Two other interesting factors are that payments are made IN CASH (not trackable by the IRS for those people who take liberties with their taxes) and before a game (no pay, no game.)

Getting Certified

In order to referee for community games, you need to take classes to 1) learn the rules and how to run a game and 2) certify that you know how to interact with children (appropriate contact, conversation, etc.) These are free to the referees. Upon graduation, you're given a jersey, pants, socks, a whistle, yellow and red cards, a coin (to flip) and you're good to go.

In order to referee club level games, you need to take a US Soccer Federation (USSF) class that certifies you are a valid referee. The lowest rank of these is Level 9 and the highest is Level 1 (which I assume are top professional referees refereeing MLS games and the like.) My son and I went to an all-day, Level 9 class in August. Afterwards, we took the test, passed, and got our badges that certify us as USSF Level 9 refs for one year. The cost of the class was $60 each.

Getting Started

At this point, a new ref would usually buy all his gear -- shirts, shorts, socks, etc. -- but we already had most of our stuff from AYSO. We did buy new, different colored shirts and a few other things, spending $100 total. But we didn't need nearly as much as someone starting from ground zero.

So I took the next step that aspiring refs take -- contacting referee assignors. These are people who assign referees for a team or several teams. By contacting my soccer friend mentioned above as well as doing some web research, I was able to identify three ref assignors in our part of the city that we could potentially work for. Of the three, two didn't really want to work with Level 9 referees (since we're limited to being ARs and can't ref above the U12 age range.) Fortunately, the one ref assignor I did hit it off with was both the closest to our home and assigned for three teams. As such, we were able to get more games and all but one was within a few miles of our house.

The Season

The fall soccer season is September and October in Michigan. We had a commitment the last week of October, so we were up for seven weeks (primarily Saturdays) during the two months. In addition, we decided to referee both AYSO and club games. The former would allow us to serve our community as well as get experience being center refs (AYSO lets both my son and me center games) while the latter would allow us to earn some money while learning the ropes of a new system.

In the end, here are our season game totals:

16 AYSO games -- Me 9 as center and 7 as AR, my son 7 as center and 9 as AR
19 Club games -- All as ARs for both of us

The Money

Here's how the financials broke down for this season:

Revenue: For the 19 games I earned $230 and my son earned $235 (we split up one game and his was higher paying)
Costs: Between the class and the uniforms, supplies, etc., we spent about $110 each (though I paid for most of his stuff)

There were also some miscellaneous costs like gas/travel and a burger here and there, but it wasn't much.

Ok, so we didn't make a windfall this time around (my son did well since I absorbed all the costs), but we had a great time, learned a lot, and set ourselves up for future success. Also remember that the costs are mostly one-time (the shirts) or once a year (the classes) and there are TWO seasons of soccer (spring and fall) in a year. In other words, we have the costs for a full year above but only revenue from half a year.

The Potential

Ok, so what sort of future success can we expect? Let's look at some scenarios.

Scenario #1 -- Let's assume that we had worked the same number of club games as we actually did (19), but that one of us had been the center ref for each of the games (remember, neither of us were qualified yet to be center refs, but more on that later). I'll assume that person would have earned $25 per game (the lowest amount a center can earn) while the other served as AR and earned the amount I earned. This means one of us would have banked $475 while the other earned $230 for a total of $705 for this season. If we'd do this for both seasons in a year, we'd be looking at $1,410 total per year.
Scenario #2 -- Let's say we hadn't worked the AYSO games this season and had done club games instead -- both of us serving as ARs. That would have given us 35 games total at a rate of $14.375 per game ($230/16) or $503 total each. This nets out to a total for both of us of $1,006 for a season or $2,012 total per year.
Scenario #3 -- Let's combine the two above and assume we worked 35 games at the club level -- one as center and the other as AR. This means one of us would have earned $875 while the other netted $503. For the season, we would have earned $1,378 total or $2,756 together for a year.

And there's a lot of potential to earn more. For instance:

As I said, we were booked (out of town) one weekend. If we had worked it, we could have netted over 10% more games (and thus 10% more pay).
We didn't work at all on Sundays (only Saturdays -- usually from 8 am until 5 pm or so) since it's our family day. But if we (or someone else) wanted to, we could have added to our number of games BIG TIME and thus our pay as well.
Since this was our first season, we worked mostly the lower level (and lower paying) games. We could move up in both age and pay as time goes on.

The Future

So, what's next for us? Well, now that we've served one season as Level 9 refs, I'm qualified to take the Level 8 class (which would then allow me to center ref games. BTW, my son is too young to take the class -- he can do so in 2011. Also, this is one advantage of living in Michigan as I believe all other states require you to serve one year between Level 9 and taking the Level 8 class.) I told my son that I would take the class and we'd work next year (both seasons) with me as center and him as AR as many games as we wanted -- and that we'd pool the money and split it (so he could benefit from my higher earnings too.) He thought this was a great deal!

We probably won't realize the amounts in the scenarios above because we probably will keep working some AYSO games to help them out (and to get experience for my son to center ref), we really can't do more games given the amount of time our family is willing to spend on this, and who knows if we can even get enough paid games in the future (do that many really exist for us? I think they do, though I'd have to network with other ref assignors.) But realistically I think we can end up making somewhere in the $1,500 to $2,000 range total per year with expenses of maybe $200 or so. Not bad for a fun activity that gets us some exercise and we both enjoy. And for my son, this is GREAT pay and beats many other jobs he could have.

The Stories

Along the way, we ran into several money-related stories that didn't fit in the above but that I wanted to share with you all. Here goes:

There were many high school and college kids reffing club soccer games (they were the center refs for the games we were ARs) and they were raking in the cash (I'm sure they weren't claiming this on their taxes, BTW). Sure, they worked all day, both days, every weekend, but they were making great money. Reffing in this manner is something my son could keep doing as he gets older.
Lots of people ref simply for the money (I assume they like the game too, but the money is their main motivation.) When we took our Level 9 test, they graded the tests right in front of us as we came up to the desk. When one 11-year-old girl passed, she held up her test score and yelled, "Aeropostale, here I come!!" :-)
On a lunch break between games my son and I went into Wendy's to grab a bite to eat. It was 11:30 am and kinda slow, the people behind the counter saw we were in our ref uniforms, and we struck up a conversation. One asked if we got paid and I told him about the club soccer games and what we made. He said, "Hmmm, that's more than I make." He had a gleam in his eye, so I think I might see him on the field someday soon.

So, what did I miss or get wrong? I'm sure those of you who know soccer refereeing better than I do can find some gaps. If so, please comment below.

Now Even God Takes Credit Cards

2009-11-08T06:05:00-05:00

For those of you new to Free Money Finance, I post on The Bible and Money every Sunday. Here's why.

The title of this post is not mine. It's from an MSN Money piece that lists nine places that accept credit cards that you might not expect to do so. On topic for this particular Sunday post, they list both churches as well as a well-known parachurch organization as follows:

2. Churches -- Marty Baker, the pastor of Stevens Creek Community Church in Augusta, Ga., designed a card reader for his church in 2005. He and his wife, Patty, have sold the technology to 115 other nonprofits through their company, SecureGive. The kiosks can process debit and credit payments or debit transactions only. "Some churches have a problem with the credit card aspect," says Patty Baker, "and we respect that. . . . But it's really only a handful of them." Baker says donations and donor networks are increasing. "People who don't think about bringing their checkbook to church now have an option."

6. Salvation Army kettles -- In 2008, Salvation Army chapters in El Paso County, Colo., Dallas-Fort Worth and Plano, Texas, became the first in the United States to provide bell ringers with credit card kettles. "The number of contributions made was relatively small," says a spokesman, Maj. George Hood, "but the bright side was that the average gift was higher, between $15 and $20." More markets will be tested in 2009.

I think there are pros and cons associated with giving using credit cards, particularly giving to churches and ministries. Here are my thoughts:

PROs

1. Convenience. You don't have to carry cash or write out a check to give.

2. You can earn cash back. Why not? ;-)

3. Easier to track than cash/checks.

4. You can do it automatically. It makes it easier for you and benefits the church as well (they know a certain amount will come in automatically).

CONs

1. Encourages use of an item many people can not control.

2. Some people may actually go into debt/borrow to give -- not a wise financial move.

3. Giving publicly encourages others to give IMO (They think, "So many other people are giving, I should too.") If your giving is all done automatically on a card, it's invisible to others.

4. Cost. There are fees to the church associated with taking a credit card and thus the amount of the donation is reduced.

I'm sure there are other pros and cons. Add yours in the comments below.

Our church does accept credit card donations but that's only on their website and it's not automated yet. As such it's a hassle to give that way and we don't (not sure we would if it was easier to do so.) On the other hand, we do often give to parachurch ministries and other charities using a credit card by going to their websites and giving that way.

What do you think about churches and ministries accepting credit card donations? Is one acceptable and the other not?

Eight Steps to Lower Your College Costs

2009-11-07T06:08:00-05:00

The following is an excerpt from America, Welcome to the Poorhouse: What You Must Do to Protect Your Financial Future and the Reform We Need, courtesy of FT Press, imprint of Pearson. Originally published in "America, Welcome to the Poorhouse." I don't agree with everything that's written in this book (you'll be able to see pretty clearly where we differ), but it often offers an interesting perspective that I thought would start some discussion here.

In Collinge’s book, The Student Loan Scam, he provides heart-breaking, horrific testimonials of borrowers who were hounded to pay their debt. He describes a man who borrowed about $7,500 in the 1980s who subsequently was found to have a form of autism that prevented him from finding a job. Despite being declared totally and permanently disabled by the Social Security Administration, he was still getting collection calls from the lender two decades later. Another borrower tried to repay her loan in full in order to save on interest costs, and the lender refused; instead, it garnisheed her wages so that it could collect the full amount. Still others took desperate measures, including leaving the country and committing suicide.

Your first plan of action should be to protect your college-bound kids from having their lives destroyed if they fall behind or are unable to make payments and wind up having their credit rating destroyed—even being deprived of a job in some circumstances. First, seriously consider whether you, the parent, ought to be the borrower and not your son or daughter—especially if you and/or your spouse has a well-paying and secure job. Unfortunately, a student loan is especially risky if my prediction about the retirement crisis is on target: if the first wave of Boomers is supposed to be able to retire in 2011 but can’t afford to, my daughter’s graduating class of 2011 is going to have a tough time landing jobs. Saddling an unemployed graduate with loan responsibility could very well mean sharing the same nightmarish fate as Collinge’s.

On the other hand, if the parents’ job situation is shaky or their income is below $60,000 or so and the son or daughter is an A student majoring in medicine or engineering or a similar lucrative pursuit that will enable him or her to repay the loan, the student loan may be the way to go. What’s more, a few dozen wealthy colleges now offer “free rides” or “cheaper rides” to students from families with less than $60,000 in household income—and sometimes more (details at the end of this chapter)—so a loan may be unnecessary.

Until we get some genuine college cost reform in Washington, there are still steps you can take to lower college costs:

1. Take advantage of free money. Before we talk about cutting costs on borrowing for college, make sure that you take advantage of grants or scholarships.

Grants, scholarships: The bad news is that they are a small percentage of the total cost of college—and most kids won’t get them because there’s only so much money to go around. For example, in 2005 a mere 2.1% of students got tuition and fee waivers—which is essentially the same thing as a full scholarship. That same year need-based grants were awarded to more than 10% of undergraduate students but averaged only $3,300. That year merit-based grants were awarded to 7.9% of students, with an average award of $4,269, and federal Pell Grants were received by 26.8% of undergraduate students, with an average amount of $2,492—plus you probably won’t even qualify for the latter unless your household income is less than $50,000. In summary, at best you’re getting around $10,000 a year. But it’s better than nothing and it’s $10,000 less that you have to borrow and pay interest on for many years.

Most of Uncle Sam’s money—about $7 billion—is distributed through Pell Grants. To get this money, you need to file the Free Application for Federal Student Aid (FAFSA), the federal government’s instrument for finding out how much each family can pay for college. The FAFSA generates an expected family contribution that guides colleges in the distribution of federal funds and serves as a baseline for calculating eligibility. See the end of this chapter for the website that tells you how much of the bill you’ll be footing.

Merit aid: This is when the college gives you a “reward” for having good SAT scores so that you’ll apply and doing so will boost its rankings with U.S. News & World Report. Yeah, it doesn’t make sense but every little bit of money helps, $4,000 or so worth in this case. Keep in mind that SAT scores matter even more for merit aid than for admission; some schools even publish cutoff test scores for scholarships on their websites. So if your kid’s SAT scores are close to the cutoff, it’s worth spending the money to take the test again and potentially save you $4,000 or so.

2. Is your kid Harvard- or MIT-worthy but you’re short on cash? Apply to a “rich” college that will subsidize most or all of the cost. Most likely thanks to Sen. Chuck Grassley’s (R-IA) efforts to put a harsh glare on colleges with rich endowments who charge sticker-price tuition, more than 60 colleges have either replaced loans with grants or eliminated tuition altogether for those falling under certain income ceilings, most often under $60,000—some offer free education for everybody, regardless of income, under certain circumstances. See the end of this chapter for some sample colleges and the link on the internet to the complete list.

3. Consider a state school, especially if you live in one of the 35 states that offer merit programs. While the price tag for many state colleges has risen because of shrinking budgets due to economic doldrums, there are still a few bargains around. For example, Georgia’s HOPE Scholarship allows any high-school student with a 3.0 GPA in core subjects to get free tuition at the state’s public schools or up to $3,000 a year at its private ones—a fantastic deal. The reason Georgia can still afford to do this is that the revenues come from the state’s lottery. Not all states are as generous as Georgia—the average grant is around $1,000—but it’s worth checking out. The following website contains links to each of the state programs: http://www.nassgap.org/links.aspx.

4. Consider one of the best bargains around: community colleges for the first two years, or maybe even all four! The average annual community college tuition is $1,500 to $2,000, compared to $5,000 to $20,000 at four-year public schools and $30,000 to $50,000 at private four-year universities. What’s more, some colleges have articulation agreements that make it easier for students to transfer from a community college to a four-year institution. Even better: some states, like California, Florida, and Pennsylvania, guarantee that students who receive an associate’s degree will be admitted into one of the state’s public four-year colleges. It gets even better: As of 2009, 17 states, including Nevada, Florida, Texas, and Washington, have allowed community colleges to award bachelor’s degrees, so you’ll be saving big bucks for all four years of schooling, as long as your son or daughter doesn’t mind commuting to college—as opposed to living there. Even if you live in a state that offers only a two-year program, community colleges are definitely a deal to consider. The only downside for students—depending on the personality of your son or daughter—is that it may be tougher to make friends at their new four-year college if they’re transferring from another college. Many students may have already joined clubs or sororities and have made “ties that bind.” Make sure that the community college of your choice has an articulation agreement.

Great resource for community colleges: http://www.ccweek.com. If you click on “Top 100,” you will see how your local community college stacks up.

Resources for four-year community colleges: Unfortunately, I couldn’t find a website with this information; presumably your child’s high-school guidance counselor will keep up-to-date on whether your home state permits community colleges to offer four-year programs and which of those that do are within commuting distance.

5. Most of us will have to borrow to afford paying for college—so keep your borrowing costs as low as possible. Unfortunately, while a home-equity loan was a good option for my Dad, it may be a risky approach these days, given the melting housing market. So what options do you have? First, consider the federal direct lending program—and make sure your child does not apply to any college that Sallie Mae has convinced to drop the loan program, which means you’re likely to be stuck with a high-cost “opportunity” loan. There are two components: a loan that parents take, and one for students. The Parent Loan for Undergraduate Students (PLUS), a federal loan program for parents of college students, is the best deal around that Sallie Mae doesn’t want you to know about; that’s why less than 10% of the population has them. You can borrow up to the amount of college expenses, regardless of income. The Stafford loan is a federal loan taken by the student. While its interest rate is currently lower than on a PLUS loan, 6.8% versus 8.5% for the PLUS loan, there are limits on how much can be borrowed. (Don’t ask me why the rate on the parent loan is higher since parents have better credit ratings.) That’s why the best course of action is for your son or daughter to borrow up to the Stafford limits and you the parent take out a PLUS loan for the rest. Two websites with more info on the Stafford and PLUS loans are http://www.parentplusloan.com/ and http://www.staffordloan.com/.

6. Whether you, your kids, or both of you wind up being the borrower, have a serious talk with your kids about choosing a major that will lead them to a career that will make the investment worthwhile. Whenever one of my kids’ friends tells me they are majoring in English, I have to bite my tongue—what kind of well-paying jobs can you land with an English degree? Some colleges actually charge more for majors that lead to low-paying jobs, such as education, fine arts, and journalism. (As a former journalist, I can attest that this is a poorly paying profession unless you’re the next Katie Couric or Anderson Cooper.) In fact, if your child is seriously interested in careers in low-paying or hard-to-get professions such as these, he or she should definitely consider a state school/community college so that your/your child’s debt load will be lower. Better yet, convince your kid to opt for a career that will enable him or her to pay back the loan. A good resource for hot job growth can be found on CNN Money’s website: http://money.cnn.com/magazines/business2/nextjobboom/. Promising careers range from physician’s assistant to computer software engineer to college instructor (most likely because college professors often have tenure and pensions so that they can afford to retire).

7. Needless to say, don’t consult U.S. News & World Report’s rankings when considering a college. A much better guide is America’s Best Value Colleges, published by the Princeton Review.

8. If your child has stellar grades and SAT scores, consider the universities that are now offering great deals—replacing loans with grants even if your household income is $200,000 or more in some cases. This is one area where Congress has tried to do right and basically shame some of the richer private colleges into shaking their money trees. Here are some examples: Stanford University, which eliminates the parental contribution for families with annual incomes below $60,000; Yale University, ditto; Dartmouth College, which offers free tuition for students from families earning less than $75,000; Princeton University, which replaces loans with grants for all students who qualify for financial aid (you have to go online and apply to find out); Columbia University, which replaces loans with grants for families with incomes below $60,000; and Harvard University, which dramatically reduces the amount families with incomes below $180,000 have to spend. This is only a partial listing, because colleges are updating their criteria all the time. To find out current offerings, visit the following page on FastWeb.com: http://www.finaid.org/questions/noloansforlowincome.phtml.